Broken Budgets – 5 takeaways from our latest insight report
Our Senior Influencing Manager Grace Brownfield examines findings from our latest report exploring the challenges faced by our National Debtline and Business Debtline clients.
Posted July 16, 2024
Inflation is at its lowest level for three years. Given the recent pressures on household and small business finances, this should be positive news. But is the pressure on people’s finances, especially those on low incomes and under the most strain, actually easing as many might expect?
According to our recent findings, based on a UK wide poll, this is not the case just yet. Our findings show an estimated 6.8 million UK adults (13%) are struggling to pay for essential costs, such as rent and council tax. And despite falling inflation, an estimated 11.4 million (21%) people say their financial situation is worsening.
At National Debtline and Business Debtline, we help people at the sharp end of financial difficulty. In our latest report Broken Budgets we explore the circumstances of our clients, their debts, and the deep-rooted challenge of negative budgets – where incomes aren’t enough to cover essential costs.
Here are my five takeaways:
- Household debts rising
Whilst overall debt levels amongst our National Debtline clients are up 5% from 2019, the increase in amounts owed on particular household bills is far higher. In the last year alone, average rent arrears are up 21% or £324, while energy arrears now stand at £1,514, a 21% rise from 2023. For council tax debt the average amount owed is £1,762, an increase of 49%, or £581, since 2019.
- Negative budgets a deep-rooted problem
Increasing debt levels tell the story of budgets stretched to breaking point. Both the Covid pandemic and the cost of living crisis have played significant roles in impacting household and small business finances across the UK. At National Debtline and Business Debtline, we are seeing an increasingly worrying trend of clients with negative budgets, whose incomes do not cover their essential costs. At National Debtline, more than two in five (43%) clients have a negative budget, rising to more than half (51%) of clients at Business Debtline.
- Impact not felt equally
Housing and relationship status are key indicators of the likelihood of someone having a negative budget.
More than three quarters (76%) of National Debtline clients with a negative budget live in rented accommodation. We found that renters with a negative budget are more likely to have a sole tenancy, compared to those with a surplus budget (76% compared to 65%). And clients who were single, a lone parent or widowed were also at increased risk of having a negative budget,, illustrating a wider issue around how challenging it is for some single-adult households to cope financially.
- Increasing debt burden for small businesses
The average amount of business debt owed for the small business owners we help has increased significantly, more than doubling since 2020 (rising from £20,592 to £49,900).
This is likely to be driven in part by small business owners having to take on additional business credit during the pandemic – particularly Bounce Back Loans. Around 35% of callers have a Bounce Back Loan with the average amount owed £25,434.
- Breaking the cycle
The financial impact of the pandemic and the high cost of living have undoubtedly had a significant impact on the circumstances of many people we help. But there are drivers of financial difficulty that extend beyond the effects of these turbulent last few years.
We are seeing too many people not able to afford essentials. Tackling this issue should be a top priority for the new government. More than half (53%) of National Debtline clients receiving Universal Credit have a negative budget. One option, proposed by the Joseph Rowntree Foundations and the Trussell Trust, which we support, is introducing an Essentials Guarantee to ensure that Universal Credit provides adequate support for people to afford essential costs.
There is also action needed now to support people falling behind on essential bills. Energy debt continues to break records for the wrong reasons with more than £3.3 billion now owed. We are calling on the new Government to work with energy suppliers to introduce a temporary, dedicated Help to Repay scheme.
As our report highlights, it is hugely concerning that so many people we help find themselves with broken budgets. The consequences of living on a negative budget extend beyond someone’s financial situation, often impacting physical and mental health. Debt advice plays an important role but cannot ‘solve’ this problem alone.
With the causes and drivers of what leaves people living on empty linked to wider public policy issues, including housing, wages and job security, we must look for solutions in these areas. There is no simple way to address this complex problem, but a key focus needs to be on increasing incomes and reducing costs of essential bills, such as housing. This would go some way to help struggling households and reduce the chances of people falling into difficulty in the first place
Find out more about our findings in Broken Budgets: an analysis of people contacting National Debtline and Business Debtline.
If you are interested in finding out more about our services and how you can partner with us get in touch.
Grace is the Money Advice Trust’s Senior Influencing Manager. She previously worked in the policy team at StepChange Debt Charity. Before that she worked on issues related to the financial impact of cancer at Macmillan Cancer Support and NSPCC. View all posts from Grace Brownfield.
